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Sunday, November 12, 2017

Government Supported Oligopoly

I don't want to say the same things I've said over the years, so I'll simply reference this conversation taking place between people who are smarter and more qualified than me.

I mentioned on Facebook recently that it sounds kind of ridiculous for a person to say "I like Company X better than Company Y" when the government is making it so those are the only two companies allowed to exist. Washington state allows more than 2 companies to exist, but there is a limit. There is a number of marijuana companies that the Washington state government will allow to exist. They will not allow any more beyond that. If you are not one of the companies the government allows, and you try to exist, the government will stop you. The companies the government allows to exist and the companies that are actually likable are not necessarily the same company.

Cannabis Vichy refers to any member of Group 1 that comes under the Sphere of Influence of either Group 2 or 3 or both. The reasons for the decision can vary, it could be lack of finances, it could be for protection, it could be an attempt to work with the political class that the other two groups are connected to.

Bottom line is the cannabis market at the retail level has a built in coercive inducement that has been around since we started Prop 215 in California. For reference on these groups and how they formed, check out the history of the failure of Prop 19 in California. It clearly defines the groups. Native California growers called the invaders the "19ers" similar to the "49ers" of the Gold Rush. The moniker drives the point home, you will have your homegrown, your invaders, your local gangsters and the sellouts that result as an interaction between the three.

These groupings are replicated in EVERY marijuana state and is something worth studying.

Jared Allaway: (I tag another person here to get him to notice the conversation) Keith Saunders

Keith Saunders: Jared Allaway No small-business start-ups in the Mass. medicinal side. Need $2.5M to open just the first one.

Pat Rodeo: Precisely why we call it Vichy, because you can only play if you pay and team up with the second or third group to provide extra political & financial muscle. Remember those groups primary power comes from their political strength which includes setting regulations through politicians as well as control of appointees in a given urban planning department. Boston, LA, Seattle, Portland, SF, doesnt matter where you go, same game.

Pat Rodeo: French Vichy were high ranking members of the old French Republic that sold out to Hitler in order to retain their priveleges, i would argue we in the growing community face the same problem as production increases and both non-state and FDI come into the industry. In order to not be economically displaced by competition, a grower has to share their intellectual property with one of the other groups. Of course its not military magnitude but it draws the analogy well.

Keith Saunders: There is no small cannabis industry in legal Mass. mmj. It is entirely vertically-integrated, requires $500K cash bond in escrow, build-outs of all cultivation and processing facilities (with fees per $1,000 in architectural remodels), no independent cultivators or processors, no sales-off site, all delivery in-house.

Each cannabis agent costs the employer $500/year in license fees, and must pass a background check to ensure they do not have drug felonies, so it costs $550 to hire someone, every time any employee leaves.

The state could have allowed up to 35 dispensaries to open in early 2014. Instead, we got 11, opening in 2015 - 2017. We presently have 13 operational, close to 4 years after legal sales were supposed to be happening and the market was to have been opened up to "normal business requirements" (i.e., no bond, no build out fees). Of course, bonds and build-out fees are still being collected.

So the Mass. medicinal market has zero small business that are operating within legal boundaries.

"With every cannabis regulatory system you have three types of actors:

Pat Rodeo: The alternative would be to form a super cooperative or coalition but this hasnt been attempted yet..not surprised to see the East Coast limiting competition because many EC operators learned in California that too much competition lowers the price beyond what they are willing to accept. This is why its so important to be involved in the formation of the regulations, unfortunately i dont see this trend abating in the new states coming online either.

Pat Rodeo: Keith I'm willing to bet you have more number ones than any other group but they are being forced to operate black market individually or team up with Group 3 to survive. Boston is a great example, there is still underground delivery via bicycle.

Dominic Corva: the only issue I have with this model is characterizing small businesses that cling to capital for survival as Vichy -- kinda stigmatizes this category as a whole, there's a continuum and most of them are basically being extorted.

Keith Saunders: But what about #3's? That is the criminal enterprises, which the small-businesses in Mass. that are producing and selling cannabis qualify as. If by "small business" it does not matter whether they are operating legally or illegally, then there are lots of states with #2's that are also operating illegally.

Dominic Corva: Blaine Matthew are there tools to study this? I'm not familiar with a methodology for doing so but you might be.

Blaine Matthew:
Hey Dominic, in Washington the Liquor and Cannabis Board has to approve any ownership changes involving “qualifying persons,” including changes for corporate officers and/or stockholders. The data isn’t out there right now, but a well done PRR could provide some insight into this by tracking license transfers/new ownership, at least with respect to small businesses coming under the influence of corporate cannabis. It would at least give people a place to start. My guess is it’s pretty widespread given the existence of groups like Green Rush Advisory Group. But I’d be interested in what the extent of this really is.

Mark Silver: During World War II a lot of talented artists continued to work in German cabarets. By doing so, after the war they were often branded as Nazi sympathizers, giving aid and comfort, however, if you wanted to work in Germany during World War II in one way or another you were working for Nazis. How many people working for IBM during the war knew about the outcomes over how IBM's punch-card systems were utilized?

If you look at the thread over on Facebook you can see some people are really struggling to understand what I'm saying. They don't realize they're struggling to understand and responding to me even though they misinterpreted me.

It bothers me that some people respond to me thinking I'm saying one thing when I'm actually saying another, but enough well educated people who do understand me interacted so I fell pretty good about the conversation I started. Even if the way I started the conversation was with a joke that doesn't even really make sense. The point is if the government only allows two companies to exist, and you like one of them better than the other, I think you are ridiculous, and I hope you see the error in your ways. If you never do, that is okay, I'll be irritated for the rest of my life, but it is okay.